The coronavirus infects the German labour market
impact on employment relationships and response options for companies
***** Update from 19.03.2020 *****
Updated sections: 1.3, 2 and 3
1. Impact on employment relationships
1.1 Employers’ obligations
Employers have duties of care (Fürsorgepflichten) which, depending on the situation, oblige them to take specific actions to protect their employees, including:
- Duty to provide information on the risks of infection and disease and typical disease symptoms. Information can be provided by means of announcements in the business premises, on the intranet, at works meetings or similar. The information on occupational safety measures provided by the Federal Institute for Occupational Safety and Health (Bundesanstalt für Arbeitsschutz und Arbeitsmedizin) may serve as the basis for this and can be accessed here: https://www.baua.de/DE/Angebote/Aktuelles/Meldungen/2020/2020-02-19-Coronavirus.html
- Hygiene precautions, for example, through appropriate hygiene recommendations in sanitary facilities or providing disinfectants. In sensitive areas (e.g. healthcare), there may be more extensive protection obligations (e.g. provision of respirators or special protective clothing).
- Request for notification of any possible trips to risk areas. A blanket request to employees to in-form the employer about private travel in general may not be permissible under data protection law.
- Protective measures if concrete cases of infection occur at the company, for example releasing infected employees from work and notifying the health authorities.
1.2 Absence from work and payment of wages/salaries
If a public authority orders a restriction or closure of the business, the employer must generally continue to pay wages/salaries to employees (who are able and willing to work) without them having to work the lost working hours. The employer bears the operational risk in this respect (third sentence of section 615 German Civil Code (BGB)). This operational risk not only includes all internal disruptions based on the failure of the company’s material or human resources. External circumstances affecting operations (force majeure) as well as the closure of the business following an official order also fall under the operational risk to be borne by the employer (see LAG Düsseldorf (Regional Labour Court), judgment of 5 June 2003, 11 Sa 1464/02). However, the principles of the operational risk theory (Betriebsrisikolehre) originally developed by case law are not applicable if, for example, the company is hit so hard economically that its existence would be endangered if full wages/salaries were to continue to be paid (see BAG (Federal Labour Court), judgment of 9 March 1983, 4 AZR 301/80). However, according to case law, strict requirements are placed on this special case.
If the employee is unable to work due to an infection with the coronavirus, the general regulations for continued remuneration in the event of illness apply (section 3 German Continued Remuneration Act, EFZG). It is also possible that individual employees may be unable to work due to infection-related preventive measures. The authorities can, for example order quarantine (section 30 German Protection Against Infections Act (IFSG)) or issue a professional ban on work (section 31 German Protection Against Infections Act). According to case law, such measures constitute a temporary personal reason for prevention, which according to section 616 German Civil Code obliges the employer to continue to pay wages/salaries (up to a maximum of six weeks, similar to the continued payment of wages in the event of illness) (see also section 49 German Federal Epidemics Act (BSeuchG) old version, BGH (German Federal Court of Justice), judgment of 30 November 1978, III ZR 43/77). If there is no entitlement to continued payment of wages/salaries, the law grants the person concerned compensation that essentially corresponds to the loss of earnings in the first six weeks (net pay). The employer must then at most pay the compensation ‘as payment agent’ (“Zahlstelle”) for this period and can have the compensation refunded by the competent authority upon application (section 56(5) German Protection Against Infections Act).
1.3 Working from home and business trips
Applicable labour law remains in force despite the risk of infection, i.e.:
- The employee generally does not have any right to refuse to work and is not entitled to stay away from work because of an (abstract) risk of infection. Many employers have, however, in the meantime instructed their employees to work from home in order to further reduce the risk of infection.
- Business trips and secondments are generally to be undertaken, but are currently being avoided as far as possible by employers.
2. Response options of companies
In view of the far-reaching organisational and financial implications, companies are well advised to start proactively addressing the potential impact of the coronavirus on employment relationships now. In particular, the following measures can be considered:
- Reducing overtime quotas or use of flexitime accounts (Arbeitszeitkonten). If flexitime accounts exist, the agreed quotas can be used to reduce plus hours and increase minus hours in order to minimise the employer’s risk of being in default of accepting the work services offered by its employees (Annahmeverzugsrisiken).
- Alternatively, ordering company holidays is conceivable. If there is a works council, co-determination rights in this respect are to be considered. Employers are therefore well advised to conclude a works agreement on company holidays in advance.
- Drafting company policies for working from home or expanding options for replacing personal meetings with video and telephone conferences. A works agreement or internal agreement must be concluded with any existing works council. Negotiations on this should be started in good time to facilitate a rapid response if infections or suspected cases arise.
- Drafting an emergency plan. This should be drawn up at short notice with the involvement of all company stakeholders (in particular the works council, departments responsible for occupational safety and data protection or the company doctor). In particular, specific rules of conduct should be laid down for the event of an acute pandemic (e.g. dealing with infected employees, informing the authorities, etc.). In addition, the company should take into account which tasks/functions are essential for operations and how these can be maintained for ‘minimum operations’ if a large part of the workforce or operations fail (e.g. by ordering overtime, relocations, working from home, etc.).
- Waiving or adjusting statutory risk distribution regarding continued payment of wages/salaries. The rules of the operational risk theory (section 615 German Civil Code) and those regarding temporary inability to work (section 616 German Civil Code) are discretionary. They can be temporarily waived, also for existing employment contracts, if this has not already occurred, by means of corresponding works agreements with the works council, using, for example, the principles developed by case law on amending employment contract provisions with a collective reference by works agreements. This is also conceivable as part of (reorganisation) collective agreements. It is possible that a (fixed-term) guarantee of employment protection will be demanded as ‘consideration’.
- Dealing with those returning from risk areas. If employees embark on private trips to risk areas despite travel warnings and have to be given leave from work as a safety precaution when they return, it may, under certain circumstances, be possible to give such employees leave without continuing to pay their wages if it is not possible for them to work from home. Section 616 German Civil Code, which generally applies in such cases, is not intended to apply in cases of ‘gross negligence against oneself’. In contrast, unilaterally ordering the employees to go on leave against their will is generally not possible, although leave can always be taken by mutual consent.
- Claim to payment of wages if schools and day-care centres are closed. If schools or day-care centres for children are closed by official order and employees are not able to work because they have to take care of their children, it is widely assumed that employees have a claim to payment of wages pursuant to section 616 German Civil Code, in some cases for significant periods of up to several weeks. However, it needs to be checked carefully in each specific case whether and to what extent the employer is obliged to continue to pay wages pursuant to section 616 German Civil Code. If a collective agreement applies in the respective company, it will usually contain specific provisions regarding personal incapacity to work. Similar provisions can also be found in works agreements. Otherwise, it is the employees who are obliged in the first instance to organise alternative care arrangements as early as possible, depending on the circumstances of the specific case (especially whether the closure is foreseeable, the child’s age and the family situation, etc.). If this is not possible, a claim to continued payment of wages under section 616 German Civil Code can be considered, although likely only for a few days in specific cases (also in view of similar provisions under collective wage agreements), and not for several weeks.
Against this background, the legislator is apparently planning to amend section 616 German Civil Code for cases in which
parents cannot come to work due to school and kindergarten closures. The employer’s obligation to continue to pay
remuneration, which (also) in the view of the federal ministries at most exists for “a few days”, is now to be extended.
The federal cabinet is expected to pass a corresponding law at its next unscheduled meeting, which will take place
next Monday (23 March 2020). Please read here.
3. Orders for short-time work and applying for short-time compensation
If the spread of the coronavirus leads to closures of businesses, supply and production bottlenecks, lost orders as a result of termination or cancellations of large events, declines in bookings e. g. resulting from travel restrictions etc., the companies affected should consider reducing (unused) personnel by ordering short-time work. Short-time work leads to a temporary reduction in the business’s regular working hours (if appropriate ‘down to zero’), with a simultaneous reduction in pay and a claim to payment of short-time compensation by the Federal Employment Agency (Bundesagentur für Arbeit). The risk of the employer being in default with accepting the work services offered by its employees can be effectively minimised by short-time work.
- Conditions for introducing short-time work: Short-time work can be introduced on the basis of individual contractual agreements (such as effective “unforeseen circumstances clauses” in employment contracts, supplementary agreements or even notices of termination with offers of re-employment on altered terms and conditions) or collective-law provisions, i.e. collective agreements or, where permissible, works agreements. If a works council is in place, it has co-determination rights with regard to the ordering of short-time work.
- Conditions for granting short-time compensation: The main condition for the granting of short-time compensation is a substantial reduction in work entailing a loss of wages (section 95(1)(1) of Book III of the German Social Code (SGB III)). In this regard, the employment agencies and social courts lay their focus in particular on the existence of ‘economic grounds’ or an ‘unavoidable event’ and the inability to avoid short-time working (section 96(1) sentence 1(1) and (3) of Book III of the German Social Code).
In its press release dated 28 February 2020, the Federal Employment Agency explicitly stated that short-time work can be subsidized for work losses caused by the coronavirus or associated government safeguards (https://www.arbeitsagentur.de/news/kurzarbeit-wegen-corona-virus). This is motivated by the clear intention to tackle the economic consequences of the corona epidemic as well and as unbureaucratically as possible. This will likely apply not only to companies that are directly affected by restrictions arising from public safety measures: industries where a drop in orders, cancellations, etc. are evident as a direct consequence, especially hotels and pubs, the tourist industry, trade fair construction companies, events agencies, etc. can expect to receive assistance in the form of short-time compensation.
In addition, on 13 March 2020 the legislator adopted the “Act on the Temporary Improvement of the Regulations for Short-Time Work Benefits due to the Crisis”) including further measures to promote short-time working, which has already come into force. The German government has on the basis of this Act adopted a corresponding regulation containing the following measures:
> Less strict requirements for the application of short-time compensation, specifically:
(1) reduction in the number of employees required to be affected by the loss of work under
section 96(1) sentence 1(4) Book III German Social Code from 1/3 to just 10%; (2) full
waiver of the use of negative work balances in order to avoid short-time working in accordance
with section 96(4) sentence 2(3) Book III German Social Code.
> Extension of the range of benefits, specifically: full reimbursement of the social insurance
contributions on the unpaid wages (which are normally borne by the employers).
The new eased regulations for claiming benefits for short-time work introduced due to the coronavirus crisis apply retroactively to 1 March 2020.
Practical recommendation: It is largely the employer who is responsible for applying for short-time compensation and their further administrative processing. Two steps essentially have to be observed:
> In a first step, the company needs to report the reduction in work to the responsible employment
agency in writing and sufficiently substantiate the existence of the preconditions for drawing short-time
compensation (section 99(1) Book III of the German Social Code). The employment agency then promptly
issues a written notice stating whether or not the conditions for granting are met (so-called ‘notice of recognition’
> In a second step, the company needs to apply for short-time compensation for each employee
concerned providing proof of their personal preconditions. The preclusive period of three months after
the month for which the benefits are being requested is to be observed for this application (section 325(3) of
Book III of the German Social Code).
Financial consequences of short-time work: The employer pays the employee the reduced wages reflecting the shorter working hours plus the short-time compensation which is paid to the employer by the employment agency and is to be passed on the employee (not the full wage).
Short-time compensation is at the earliest from the calendar month when the notification pursuant to section 99 of Book III of the German Social Code is received by the employment agency. The maximum benefit period is currently 12 months. It can be extended up to 24 months by a regulation of the Federal Ministry of Labour and Social Affairs; it is currently planned to extend the benefit period to 24 months, but this has not been implemented by a corresponding regulation yet.
In principle, the short-time compensation amounts to 60% of the original standard net wages (pauschaliertes Nettoentgelt). If at least one child also lives in the employee’s household, the short-time compensation is 67% of the original standard net wages. The standard net wages applying to the employee concerned can be found in the relevant Federal Government regulation. On this basis, the amount of the short-time compensation can be calculated using the table provided by the Federal Employment Agency. Accessible here.
Short-time compensation is paid for all employees who are in an employment relationship obliged to pay social security contributions. This applies regardless of the amount of the respective salary. However, the amount of the short-time compensation is capped: only monthly salaries and wages in an amount of up to €6,900 gross are covered.